The government’s demonetisation drive has caused a cash crunch, forcing people to look at plastic money and other forms of digital payments. But, for a society accustomed to physical notes, the transition to cashless comes at a cost. Many households are likely to see their budgets shoot up as they pay more at merchant establishments that accept digital payments.

Around 95 per cent of consumer transactions by volume and 65 per cent by value are carried out in cash in India, according to a JM Financial report. “India is still a cash-intensive economy with a cash-to-GDP ratio of over 12 per cent," the report states. Life has become difficult as the higher-denomination notes of Rs 500 and Rs 1,000 accounted for 86.4 per cent of the total currency in circulation by value as on March 31, 2016, according to the Reserve Bank of India’s data.

“Consumers have no option but to opt for digital transactions after the demonetisation, and for this they will need to bear additional costs," says Madan Sabnavis, chief economist, CARE Ratings. He points out that though ATM transaction charges have been waived, other charges remain. Some of these are service charge for booking tickets online (Rs 20-40 plus tax) and a surcharge on using cards at petrol pumps (except on cards that specifically waive the surcharge). This is 0.75-1 per cent on debit cards and around 2.5 per cent on credit cards. “While it has been recommended that these additional charges be done away with, this has not been implemented yet. Today, when a financial transaction is done using a debit or credit card, the merchant incurs an additional cost, which in many cases he passes on to the customer," says Sabnavis.

Impact on your budget

Besides transaction fees, an individual also needs to shell out more when he moves away from mom-and-pop goods and service providers to those establishments that accept digital payments. We looked at the additional costs an individual needs to bear when he goes cashless in his day-to-day life in three product categories in Delhi and Mumbai, and the impact this will have on his household budget.

Household essentials: For buying vegetables and fruits at a supermarket, be ready to shell between 5-30 per cent more. Add to this the cost of driving to the mall or supermarket and paying parking charges. If the supermarket only sells Tetra Pak cartons instead of packet milk, you could end up paying 50 per cent more. From Rs 1,200 a month for one litre of milk a day, your monthly cost will shoot up to Rs 1,800. There are offers at supermarkets wherein a shopper gets free sugar or a discount on using cards, but going to a local vendor is likely to be cheaper in the majority of cases.

Purchasing household essentials online is another option since these vendors accept digital payments. This also helps to cut down on travel time and fuel costs. However, in some cases a minimum order may be required for free delivery, says Rs 1,000. If the bill is lower, there could be a delivery charge of Rs 25-30, which varies depending on the category of goods chosen.

Travelling: While many people commute to work using local trains, buses and the metro, some rely on auto rickshaws or taxis to reach the station or bus stop, or to reach office from there. A four-km auto rickshaw and taxi ride costs Rs 49 and Rs 59 respectively in Mumbai. If you hire an app-based taxi, it will cost you around Rs 100, thereby doubling your cost. However, if the distance is more than 10 km, app-based taxis may cost you about the same or may even be cheaper than an auto rickshaw or taxi.

Eating out: Lunch at a small restaurant or roadside stall may cost around Rs 70-80. But if you go to a small eatery that accepts cards, the cost is likely to rise by at least 60 per cent. Many restaurants don’t accept cards if the order is below Rs 100. The cost of a cup of tea or coffee with snacks can shoot up from Rs 30-40 at a roadside stall to Rs 100 at a restaurant that accepts digital payment. Food ordering apps are becoming popular, but they require a minimum order of Rs 150-200 for free delivery.

Like many others, Anita Verma has been buying household essentials on credit and is paying the vendor by cheque currently. She even plans to pay her maid, newspaper person, dhobi and driver by cheque next month. “But, this arrangement is temporary. Most of them won’t continue to accept this mode of payment, as they require immediate cash for their expenses," she says. For her, the pain point is a visit to the doctor, where she doesn’t have the option to pay by card and many are not accepting old currency notes.

Besides the costs in purely monetary terms, there are practical difficulties one faces in going cashless. In metros, it is still easier to opt for digital transactions, since the level of acceptance is higher. In fact, many roadside fruit and vegetable vendors have now begun to accept payments through mobile wallets like Paytm. But in smaller towns, cashless transactions can be challenging. India has one of the lowest numbers of card swiping machines or point-of-sale (PoS) terminals per capita in the world, according to research by EY. About 70 per cent of these are in the top 15 cities and they contribute over 75 per cent of total volumes.

Moreover, the banking infrastructure is ill-equipped to handle large volumes of card transactions. Four days after demonetisation was announced, Mumbai-based Sushma Bhosale went grocery shopping in a supermarket. But the PoS terminal wouldn’t accept her card despite repeated attempts. Finally, her brother came with cash and paid the bill. If if you are in an area with poor internet connectivity, you will not be able to transact using your mobile wallet.

Cashless future: Not so near

Digital payment is on the rise in the country. The number of debit cards more than doubled between 2012 and 2016, and so have the card swiping or point-of-sales machines. Online transactions through National Electronic Fund Transfer (NEFT) went up from Rs 4 lakh crore in 2009-10 to Rs 83 lakh crore in 2015-16, a 2,000 per cent rise. Recently, we have seen new payment mechanisms such as wallets and unified payment gateway. But going completely cashless may not be feasible in India, since cash is required for small ticket payments, says Abheek Barua, chief economist, HDFC Bank. For instance, for payments to the plumber, electrician or tailor, one would still need cash. If you use NEFT or cheque, your cost of transaction will go up. “Data show that over the years the volume of cash transactions has gone up, but value has come down. This indicates that large ticket payments have moved to non-cash, but for small ticket payments cash is still the preferred mode of payment,’’ he says.